Forecast Surplus in 2028-2029 Hinges on Uncertain Factors

The New Zealand government has released its Pre-election Economic and Fiscal Update, which shows a smaller operating balance before gains and losses deficit of $8.73 billion in 2026-2027 compared to the previous forecast of $14.09 billion.

The update also projects a surplus in 2028-2029, one year earlier than previously expected. However, experts warn that this is still a forecast and not guaranteed, as it depends on various factors such as tax receipts, growth, inflation, interest rates, and future political choices.

The government's preferred interpretation of the update is that the improvement reflects prudent management and fiscal discipline. But critics argue that stronger-than-expected tax revenue has done much of the heavy lifting, and that a fiscal recovery based largely on revenue surprise can fade.

The central weakness in the government's argument is that the national accounts do not yet resemble the household accounts of many voters. Inflation remains above the Reserve Bank's target range, unemployment is at a decade high, and the economic recovery is only beginning to broaden beyond exports.